Businesses' revenue declined 2.6% in the last three years

Businesses struggled to convert revenue to cash in last three years

They struggled to convert revenue to cash.

Over the last three years, businesses in Singapore saw an average 2.6% YoY decline in revenue, PwC Singapore and SPRING Singapore revealed.

According to their Singapore Working Capital Study 2017 report, there has been a year-on-year increase of 3.5 net working capital (NWC) days over the past three years, reaching 41.5 NWC days in 2016.

Net working capital (NWC) days measure the liquidity of the business and how long it takes to convert its working capital into revenue.

"The longer the cycle is, the longer a business is tying up capital in its working capital without earning a return on it," PwC said.

The study also showed that 50% of sectors saw their working capital performance deteriorate YoY.

This performance was driven by an increase in the time taken to collect cash from sales (Days Sales Outstanding) and an inventory increase (Days Inventory Outstanding), partially offset by an increase in the time to pay creditors (Days Payables Outstanding) that might not be sustainable in the long term, PwC said.

The study also found that very large companies perform best with the highest ratio of working capital to sales at only 8%, followed by small companies at 14%, and large companies at 15%.

Medium-sized companies are the ones struggling the most in managing their working capital with the highest ratio at 18%. Their cost for growth is higher, increasing their difficulty in accessing funding at favourable rates.

They find themselves battling for cash while having little negotiating power. Inadequate proficiency in managing a growing business coupled with lagging tools and systems can also add to poor performance.

Some top performers are clearly ahead with higher investment rates, getting paid 40% faster than bottom performers and holding four times less inventory.

PwC Singapore said top performers are better positioned for growth as they can self-finance part of their investments or secure funds more easily by displaying healthier financial reports.

"Based on the findings, one thing is clear – businesses in Singapore need to focus on cash management, specifically working capital. This is essential to better position themselves for funding and investments, and to allow them to create greater business value," PwC Singapore said. 

More From Singapore Business Review